How to Make Money Giving Stuff Away Free

How to Make Money Giving Stuff Away Free 03/14/2005 06:22 PM

The Idea: Innovative companies are learning that giving something away free can be good for both the top and bottom line. Unscrupulous companies are abusing it. Oligopolies are wringing their hands and calling it theft, and the end of the world. Is this trend inevitable, and how can we make it work to everyone's benefit? The price trend in almost everything, except for oil and other non-renewables, is downward. In some cases this is a good thing: Open Source development of software, and the free exchange of information over the Internet, for example. In some cases it's not so good: The Wal-Mart Dilemma for example, which trades off low prices for poor quality, third world slavery and loss of Western jobs. In some cases whether it's good or bad depends on where you sit -- File-sharing, for example, which allows new artists to get low-cost exposure or markets, and which hurts both the price-gouging recording industry oligopoly and independent artists who count on modest-price CD and MP3 sales to make a living. Conventional wisdom is that if you lower the price you have to make up the loss by either cutting costs (by squeezing suppliers and employees a la Wal-Mart) or drastically increasing volume, a la Amazon. But what happens when the price goes to zero -- How do you make money then? The answer is by being innovative, and recognizing that the supply/demand curve is inexorable, and, except when distorted by government subsidy, failure to absorb full external costs, or oligopolistic price-fixing, the price will find its own level. And increasingly that level is zero, reflecting both the lower value that consumers put on most of the mass-produced junk that we're inundated with, and the lower buying power that consumers have been left with thanks to corporatist exploitation and cowardly lack of government regulation. If you can't beat 'em, join 'em. How can responsible, innovative companies give stuff away free, and still make a living? Some new ways are being invented all the time, but here, classified by consumer receptivity, are some of these techniques: 1. Thumbs Down -- disreputable methods, some bordering on fraud: Pyramid schemes: Sign up five other people to buy X, and you get it free. Just don't expect those five other people to be your friends ever again. Buy one get one free schemes: Consumers aren't stupid. They know this means half price when you buy in bulk, not free. Limited-time free trials: One of the frankensteins of high-tech. This means you have a now-useless piece of software, non-functional link or 'expired' online subscription with the vendor's name all over it, so you can curse them again every time you stumble over it until you get pissed off enough to delete it once and for all. Once you've given something away it's bad manners to take it back. Free if you're not satisfied: Yeah, right. Just try and get your money back without investing more in time, effort and aggravation than the product cost. 2. So-So -- methods that work sometimes, sometimes not: Free samples: These are better than limited-time free trials because they don't persist, on your computer or anywhere else. Once they're gone, they're gone, and you know that going in. Free prize inside: So-called by marketing guru Seth Godin, this is something you give away that's 'hidden' in the product, like the crackerjack prize, or a surprise feature in hardware or software, or the extra video you get with your music CD. If it's genuinely valuable and not hyped, it's a good deal. But if it's not valuable, you're getting what you paid for it. And if it's hyped, the consumer will start to suspect that it's not free -- its value has been built into the total price. Shareware, pay what you want: Free with a guilt trip attached is not free, unless you're shameless. Barter: If you're trading away something that someone else values more highly than you do, to get something that you value more highly than they do, then this is a winner. It rarely works that way, however, and when it doesn't, barter is just two market transactions back-to-back, with the money reflecting the real (greater than zero) price invisible. All you save is the sales tax, and maybe the environment if you're buying used instead of new. Which is OK, too. But not free. 3. Ingenious -- methods that work: Information and/or do-it-yourself process free, 'live' service extra: We need to learn to do more things for ourselves. I applaud companies that help people do things themselves, and offer to help, at a reasonable charge, if it turns out they can't do it themselves because they just don't have the time or the skill. It can be abused of course, if the information or do-it-yourself instructions have landmines in them (e.g. vague, erroneous, or impossible to follow instructions). But it's usually legit. Basic product or service free, premium product or service extra: You get what you need to function effectively, a 'satisfactory customer experience' free. Add-ons that increase functionality, convenience, or ease of use, cost. Give away desktop-to-desktop VoIP free and charge for desktop-to-landline calls, as Skype has done. Or give away the CD and create a huge appetite for the band's live $60/ticket concerts. Again, this can be abused if the basic service doesn't meet minimum functionality standards. But most companies realize the bad PR they will get if they abuse this isn't worth it. 4. You Tell Me -- new methods not yet proven: Money back if you don't use it: The other day I heard a radio commercial for insurance that gives you your premium back if you don'f file a claim during the year. If you don't, and you renew for another year, they keep the premium and apply it to that second year, so they effectively have one year premium to invest forever, and they make their profit by that investment. Their premiums are probably higher than the normal insurance company rates, but once you sell the car or house you get it back, so who cares? I suspect that if you have a claim they drop you like a hot potato, and that, because you forfeit the premium if you do, the number of claims is probably lower and the likelihood of anyone putting in a small claim is low. But it still sounds too good to be true. Anyone know about this? Is there a catch? What am I missing? What other innovative or devious ways are companies using to give people something for nothing, and still make a living? Is this the wave of the future? Think of the essentials of life: food, clothing, energy and shelter. How could we give people a comfortable level of all three, for free, in a way that would allow the producers of these things a reasonable income? And if we did, would people get lazy and stop working? Would this necessarily be a bad thing? Or would they be inspired by a personal moral code to invest some time and energy to give something back, free, in return?

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